Facing Climate Financing Realities: How to think about coming pledges at COP 26

With the first part of the Conference of the Parties to the Convention on Biological Diversity in China now in the rearview mirror and the 2021 United Nations Climate Change Conference (COP 26) in Glasgow just days away, we must consider how we’ll be able to meet the increasing need for financial resources to address the acute climate and biodiversity crises we face. 

A crucial aspect of this work is that we must acknowledge that public and private actors have different roles and interests in tackling climate financing challenges.

There is little doubt that new financial pledges will be made in Glasgow, which will send important political signals in their own right. However, these pledges must be placed in the context of prior commitments and actions so that we can learn from the past and improve our approach for the future. 

A crucial aspect of this work is that we must acknowledge that public and private actors have different roles and interests in tackling climate financing challenges. We also need to learn why both groups have yet to meet the expectations outlined in prior pledges so that we can target our efforts accordingly.

Learning From the Past: How we missed the targets

There are two recent reports that document how and why public and private actors have not been able to meet the climate finance commitment set out in Copenhagen over a decade ago. The first, published by the Overseas Development Institute (ODI), highlights the leaders and laggards among countries in their efforts to fulfill their existing commitments to mobilize USD 100 billion annually for climate by 2020. The second is the Organisation for Economic Co-operation and Development’s (OECD) latest iteration of its work on climate finance provided and mobilized by developed countries. 
Both reports speak to an urgent need to increase allocations to public climate finance, especially among those countries most responsible for our current climate predicament. They also highlight a need to understand that the private sector’s interest in climate investments does not reach all sectors. 

Of the 23 donor countries analyzed in the ODI working paper, only Norway, Sweden, and Germany were estimated to be providing their fair share of finance, while Canada, Australia, and the United States were among the cadre of countries that were deemed to be providing the least amounts of climate financing based on their estimated climate impacts. 

While pledging governments may have over-committed in Copenhagen in 2009, it is also apparent that their assumptions regarding private finance were also overly optimistic. Private sector finance, viewed as critical to delivering on the Copenhagen pledge, failed to participate as expected. The OECD’s recent analysis shows that private finance has been largely uninterested in working alongside public finance toward climate goals. According to the OECD, in 2016, for every USD 1 of bilateral and multilateral climate finance, 21 cents was mobilized from private investors. In 2019, that number was roughly the same.

A Better Understanding of Private Sector Climate Finance

Before we assume how the private sector will respond to pledges made in Glasgow, we need to consider the history so far. Specifically, private finance is currently more interested in investing in certain sectors of the climate change issue, namely climate mitigation through green energy, and has shown less interest in others, such as adaptation and nature-based solutions. Organizations such as ours are working on building the track record and business case for underinvested sectors such as sustainable and resilient infrastructure, including nature-based infrastructure. Yet we also recognize that the public sector will remain the key financier going forward.

The meetings over the next few months will set the trajectory for the next decades on climate and biodiversity and must include a serious discussion regarding finance.

Donor governments, for their part, must recognize this evidence and make sure that public climate finance continues to fill the gaps. They also need to know where to target their efforts. Public climate finance should not be used to incentivize private investors in sectors where they are already closely involved. Donor governments should instead use public finance to attract investors to underinvested sectors where possible while acknowledging that in some sectors, public finance is currently—and will likely remain—the only source of investment. While Glasgow will bring targets for more finance, better targeting of that finance is crucial for learning from past missteps.

The meetings over the next few months will set the trajectory for the next decades on climate and biodiversity and must include a serious discussion regarding finance. However, that discussion needs to recognize where we were leaving Copenhagen and Paris, where we are now, and who the actors are that continually bring needed finance to the table. Facing these financing realities is crucial to setting meaningful pledges and attainable goals for the future. We cannot afford to miss again.